ICAEW and X-Forces Business Advice Series: Financing Exports

For exporters the longer lead times between providing the goods or services and getting paid can present particular financial problems.

There are a range of alternative methods of trade finance to help exporters finance export transactions. These include:

Cash in advance – whereby the exporter receives payment in advance of the shipment of goods or receipt of the relevant services

Letters of Credit – here a bank specifies the terms under which it will pay the exporter usually specifying the documents it must receive before making payment

Collection (term and sight) – the exporter ships the goods before payment but retains control of them until payment (or a legal promise to pay) is received from the importer.

However most exporting is on “open account” whereby the exporter despatches goods to the importer and sends an invoice for the goods for payment after at an agreed date or after agreed period.

Because of the additional risks in exporting it is important to insure against non-payment or some action outside the importers control e. g. political risks. A specialist broker or insurance company can advise on the insurances required.

Exporters should consider accessing the usual bank loans and overdrafts or invoice factoring and discounting.

“A handy cash flow solution, is trade finance for businesses that are in engaged in exports. It can take on several forms, including advances of funds from a finance provider (like a bank). This provides a cash guarantee that can be used to cover the costs for your export operations.” Anthony, X-Forces Senior Business Consultant

UK Export Finance (UKEF) is a government agency which offers help to exporters to raise finance. These include:

Bond Support Scheme – if an exporter secures an advance payment, the export customer may ask for a guarantee. Or the exporter may be asked for a tender, performance or warranty bond. UKEF provides a guarantee to the exporter’s bank so that it will provide the guarantee to the importer.

Letter of Credit Guarantee Scheme – UKEF provides a guarantee to the exporter’s bank so that they can confirm a Letter of Credit.

UKEF also provides help to overseas buyers purchasing goods from UK exporters.

For further information:

https://www.gov.uk/government/organisations/uk-export-finance

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Help for businesses can be obtained from ICAEW’s Business Advice Service. This is a free straightforward discussion with an ICAEW Chartered Accountant. Further information can be found at www.businessadviceservice.com